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Explain how a fall in its foreign exchange rate will benefit an economy

Quick Answer:

A fall in the foreign exchange rate may benefit the economy in several ways

The current account of the balance of payments may improve following a depreciation or devaluation

A fall in the value of the exchange rate will make exports cheaper, in terms of foreign currencies, and imports more expensive, in terms of the domestic currency. Domestic firms will be able to sell more products both at home and abroad. Some domestic consumers will prefer to purchase home-made products rather than the now relatively more expensive imports. Some foreigners may now buy the country’s exports rather than products produced by firms in other countries.

There may be economic growth and lower unemployment

A rise in net exports will increase aggregate demand. A rise in output. Higher output may result in lower unemployment.

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